Digital Agencies Win More Performance Incentives and Retainers

Marketers still primarily use fees to compensate digital agencies, but they're increasingly adding performance incentives and giving digital shops retainers like those traditional agencies enjoy, according to a new survey from the Association of National Advertisers.

Digital-agency compensation appears to be in a growing state of flux, with 43% of respondents adjusting it last year and 50% planning to do so this year. Of respondents who changed compensation, 73% restructured or reduced fees. Performance incentives also are a growing focus, as 23% of respondents said they changed them last year, and 29% said they plan to do so this year.

A retainer plus project fees is now the predominant form of digital agency pay, with 66% of marketers using that approach in 2011, up from only 37% in 2009.

Despite efforts by some big marketers to streamline their digital rosters, the survey also found a growing number of marketers using a larger number of shops. This year, 44% reported using five or more digital agencies, up from 39% in 2009 and 23% in 2007.

"Marketers are telling us that digital agency compensation must adjust in kind to fully capture the opportunities available for this high-growth area," Bob Liodice, CEO of the ANA, said in a statement.

Performance incentives remain an area of interest for digital agencies. "The use of performance incentives with digital agencies has lagged compared to traditional ad agencies, which is surprising given the inherent measurability of digital media," said David Beals, CEO of consulting firm R3:JLB, which worked with the ANA on the study. "However, this survey indicates that the use of incentives with digital agencies is now catching up to the rest of the world, and I would expect to see a continued increase in coming years."